VZCZCXRO6038
RR RUEHRG
DE RUEHBR #0121 0231857
ZNR UUUUU ZZH
R 231857Z JAN 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 7915
INFO RUEHRG/AMCONSUL RECIFE 6140
RUEHRI/AMCONSUL RIO DE JANEIRO 3746
RUEHSO/AMCONSUL SAO PAULO 9063
RUCPDOC/USDOC WASHDC

UNCLAS BRASILIA 000121 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR AMB. VERONEAU 
STATE PASS USTR FOR CRONIN 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA 
 
E.O. 12958: N/A 
TAGS: ETRD USTR ECPS EINV PREL BR
SUBJECT: BRAZIL - FOLLOW UP ON AMB. SOBEL'S MEETING WITH DEPUTY USTR 
VERONEAU 
 
REF: 06 STATE 193863 
 
This cable is sensitive but unclassified, please protect 
accordingly. 
 
¶1. (SBU) Summary:  Post appreciates USTR's thoughtful and considered 
outline (reftel) of potential initiatives that the USG might pursue 
bilaterally with Brazil to enhance the trade relationship.  After 
reviewing those ideas put forth, we believe the area of greatest 
near term potential is a bilateral steel forum.  Although 
sensitivities on both sides may initially limit the scope of topics 
discussed in such an initiative, mutual confidence built over time 
may allow for additional subjects to be broached as well.  Post also 
supports the idea of asking Brazil to lower tariffs on certain 
integrated circuits as well.  Unfortunately, Brazil has placed on 
hold Congressional ratification of bilateral investment treaties 
with many countries due to differences over whether it can 
constitutionally submit government agencies to binding foreign 
arbitration.  End Summary. 
 
Steel Forum 
----------- 
 
¶2. (SBU) Brazil is a major steel producer and exporter, which, like 
the steel industry United States, views with some concern China's 
emergence as a new steel competitor.  Brazil has long-standing and 
extensive supply links with U.S. industry, from pig iron that feeds 
many U.S. steel mills, to unfinished steels that are further 
processed by U.S. mills.  Moreover, given acquisitions and mergers, 
the Brazilian steel industry has a growing stake directly in the 
U.S. steel industry.  These commonalities form a promising ground 
for a bilateral forum. 
 
¶3. (SBU) We would expect that at least initially there would be some 
subjects that the Brazilians would not want broached, or the raising 
of which would make them view USG intentions for the forum with 
suspicion.  Foremost among these are recent allegations of slave 
labor conditions in the Brazilian charcoal industry, which provides 
inputs to local pig iron producers and through them ultimately to 
U.S. industry.  The GoB is cooperating with a DHS/ICE investigation 
into labor conditions at these charcoal camps but we expect that it 
would want to keep the affair in law enforcement channels. 
 
¶4. (SBU) National Development Bank (BNDES) support for Brazil's 
steel industry likely would be another sensitive point for the 
Brazilians.  For the GoB, overall BNDES support for industry, 
including steel, is not negotiable.  The GoB is unlikely to see much 
purpose in a bilateral dialogue with the USG on the point (although 
they may be willing to clarify specific questions on the mechanics 
of BNDES financing).  Brazil nevertheless has negotiated constraints 
and limits on BNDES financing.  For example, Brazil engaged 
constructively in the recent successful negotiation, under OECD 
auspices, of the aircraft finance understanding.  Brazil's goals in 
that process were two-fold: a) to limit the costs of export finance 
to the national treasury; and, 2) to ensure fairer competition and 
clear rules of the game with Canada, Brazil's main rival in that 
sector.  It is possible that Brazil's concern with China's emergence 
as a competitor in steel would create an opportunity for engagement. 
 Whether that concern would be sufficient to overcome Itamaraty's 
south-south cooperation focus on China and join a WTO subsidies case 
is an open question. 
 
Integrated Circuits 
------------------- 
 
¶5. (SBU) Post also supports the idea of asking Brazil to join the 
WTO Information Technology Agreement, or alternatively, the 
Government/Authorities Meeting on Semiconductors (GAMS) in reducing 
to zero the duties on Multi Chip Packages (MCPS).  The GoB desires 
to support development of a larger semi-conductor industry in Brazil 
to feed its existing electronics industry, but these plans would not 
necessarily conflict with the tariff reductions on MCPS. 
 
SOBEL